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SOME ECONOMIC ASPECTS 
OF WAR 



A LECTURE DELIVERED BEFORE THE ARMY 

WAR COLLEGE AT WASHINGTON, D. C. 

APRIL 11, 1913 



BY 



HENRY C. EMERY 

Professor of Economics at Yale University 



Published by the War Department for distribution 
in connection with the educational work of the Army 




WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1914 



SOME ECONOMIC ASPECTS 
OF WAR 



A LECTURE DELIVERED BEFORE THE ARMY 

WAR COLLEGE AT WASHINGTON, D. C. 

APRIL 11, 1913 



BY 



HENRY C. EMERY 

Professor of Economics at Yale University 



Published by the War Department for distribution 
in connection with the educational work of the Army 




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WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1914 



*>£* 



I OF D, 
FES 2C f 



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SOME ECONOMIC ASPECTS OF WAR. 



This lecture, which I present with much misgiving, is the result 
of a brief conversation which I had with Col. Greble, Capt. McCoy, 
and a few others one afternoon last fall when I happened to come 
upon them in the midst of a military discussion. Some joking 
remarks were made on the assumption that, as a political economist, 
I would be, naturally, opposed to any program for an increased 
military organization, which was the topic of conversation. To 
justify myself in such company, I began to give some of the economic 
arguments in favor of a strong military organization, and some days 
afterwards I was invited by Gen. Wood to address the officers of 
the military college. 

I was so flattered by the invitation that I accepted without much 
thought, and now feel much embarrassed at having done so. It is 
hardly possible that there is any problem regarding war or military 
armaments with which you are not much more familiar than I am 
myself, and I am not here this morning with any idea that I can 
tell you anything new. On the other hand, I try to justify myself 
for taking your time in this way because it is often interesting to 
have familiar facts approached from a different angle, and to have 
one's own ideas in some measure supported by an outsider, who can 
not be charged with any personal or professional prejudice in his 
expression of views. 

I shall start far from the immediate subject by suggesting to 
you that, disregarding the theories of individual philosophers, there 
are three, and only three, general theories of society, or theories of 
historical development, which have been held in modern times by 
large numbers of men, and which have directly influenced the policies 
of nations. These I shall call individualism, socialism, and national- 
ism. To the individualist the activities of the present day and the 
whole course of history are to be interpreted as a struggle between 
individuals, each seeking his own welfare under the guidance of 
enlightened self-interest. To the socialist the history of mankind 
presents itself as primarily a struggle between classes within a given 
society, each class attempting to secure for itself privileges, preroga- 
tives, and the lion's share of power and material. comfort, and each 
class in turn being overthrown through the rise of a new and more 

3 



4 SOME ECONOMIC ASPECTS OF WAR. 

powerful class. Finally, the nationalist reads history as a record of 
struggle between political groups, races, or nations, and looks upon 
the problem of national survival, expansion, and supremacy as the 
vital concern of mankind. 

All of these theories have an element of truth and each in turn is 
likely to be disregardful of the significance of the others. The indi- 
vidualist refuses to recognize the fact, or at least refuses to recognize 
the necessity, of the struggle between classes and the struggle be- 
tween nations. He looks upon the interests of labor and capital as 
harmonious and equitably adjusted by the play of economic forces, 
and he largely disregards national boundaries as playing any essen- 
tial role in relation to man's welfare and prosperity. Thomas 
Cooper, an early president of King's College, New York (now 
Columbia), said that the word u nation" was merely a grammatical 
contrivance, corresponding to no reality. 

The socialist, on the other hand, fails to recognize the importance 
of competition within groups and sees little but the united forces of 
one class facing those of another. At the same time he is as cos- 
mopolitan as is the individualist and believes that the mutual inter- 
ests of classes throughout the world are powerful enough to break 
down national boundaries and to make struggles between nations 
impossible in the future. I leave it to you to search your own minds 
as to how far you also, with your ideas of the importance of national 
struggles, disregard the element of truth which lies in the other 
two theories. 

It is possible to combine two of these conceptions of history 
together, and a brilliant German economist begins a book by the 
somewhat brutal statement that all history is either a struggle for 
the feeding ground or a struggle for a share of the fodder. 

The last theory of society to which I have referred, namely, that 
of nationalism, is historically the first, but I have put it last because 
it has been vigorously revived in recent years, both on the basis of 
new theories of science and on the basis of changed economic condi- 
tions. For centuries the bitter struggle between racial and natural 
groups was so patent and obvious a fact that it was generally 
accepted as the all-important factor of human affairs, without much 
theorizing regarding it either on the part of the statesman or on 
the part of the philosopher. 

A strong reaction developed in the early part of the nineteenth 
century, and the opposing individualistic conception largely domi- 
nated both the ideas of thinking men and the policies of statesmen, 
especially in the second and third quarters of the century. This 
was partly the result of the new philosophic ideas which charac- 
terize the close of the eighteenth century, especially in France and 



SOME ECONOMIC ASPECTS OF WAR. 5 

England, and partly the result of the peculiar commercial conditions 
of that time. 

The best expression of it, especially in the field of economics, is 
to be .found in Adam Smith's " Wealth of Nations," published in 
1776, in which he preaches the doctrine of the "natural system of 
liberty " and opposes all the regulations and restrictions which had 
been used with the view of advancing the prosperity of one nation 
at the expense of others, and laid the foundation for that theory of 
leaving the welfare of society to be worked out through the com- 
plete liberty of the individual to follow his own best interests, 
unchecked and unregulated by the action of government. 

Seed of this nature fell on fertile soil at the close of the Napoleonic 
wars. Europe was worn out by a long series of wars which had 
culminated in that titanic struggle, and from sheer exhaustion 
nations were ready to accept a philosophy of perpetual peace. But 
equally important was the fact that England had advanced so im- 
measurably beyond other nations in industry and commerce that for 
a long time to come the possibility of economic rivalry between 
nations seemed slight. England had everything in her favor in 
desiring peace with all the world. She had in the past adopted a 
policy of vigorous protectionism and of brutal aggression wherever 
commercial gains were to be secured. She had come out so com- 
pletely the victor that it did not seem worth while for any other 
nation to attempt now to enter into rivalry with her, either by the 
adoption of her commercial policy or by an attempt at the reconquest 
of her vast colonial possessions. 

Under these conditions the policies of peace, economy, free trade, 
and laissez fa ire went hand in hand and were generally accepted by 
most thinking men as representing the policies which the world 
should have followed in the past and was now destined to follow in- 
definitely in the future. The interests of the individual and the state 
were assumed to be identical and the interests of nation with nation 
to be completely harmonious. Thus the principles of individualism 
and cosmopolitanism came to hold sway for more than 50 years. A 
great change, however, was to take place and the doctrines of that 
time have come to-day to be widely discredited by the most profound 
students of economics and politics. As one recent writer — Prof. E. V. 
Robinson — has well expressed it: 

Finally, in addition to the silent crumbling away of the philosophical founda- 
tions of the cosmopolitan theory and its breakdown on a matter of such capital 
importance as the relation of the state to industry, has come its total discredit 
through the ascertained falsity of its economic assumptions. It was assumed 
(1) that England was destined to be the workshop of the world; (2) that free 
trade was to solve the economic (or social) problem; (3) that the world was 
soon to adopt the unrestricted exchange of products; (4) that the era of per- 



6 SOME ECONOMIC ASPECTS OF WAR. 

petnal peace was close at hand — all of which, being necessary inferences from 
the accepted doctrine of economic harmonies, as formulated by Bastiat, were 
formerly thought above discussion, but now are held beneath it. 

As I have already said, the causes for this change in attitude are 
two-fold: First, revolutionary changes in scientific theory regarding 
organic life; and, secondly, the change in economic conditions which 
brought about a renewal of national rivalry and an increased sense 
of race conflict. The full significance of the Darwinian theory of 
the formation of species through natural selection based on a struggle 
for existence was not at first appreciated so far as its bearing on the 
history of human societies was concerned. When, however, national 
antagonisms once more came to make themselves consciously felt it 
was found now that our conceptions regarding the problem of race 
struggle took on an entirely new aspect. Here was a scientific theory 
ready at hand to give a profound philosophic basis to a nationalistic 
conception of history, both past and future, which the writers of the 
middle of the nineteenth century supposed they had disposed of for 
all time. 

This evolutionary application of the function of war in the history 
of civilization has been made by many writers. Much attention is 
paid to it by the well-known Dutch writer, Dr. Steinmetz, in his re- 
cent work entitled " Die Philosophic des Krieges." The first writer 
in English to develop this idea in striking form was Walter Bagehot 
in his epoch-making little book entitled " Physics and Politics." The 
main thesis of the book is the development of race character and the 
advancement of civilization through the continuous struggle of com- 
peting groups for expansion and supremacy, in which the process of 
natural selection operated, as in the case of all organic life, to bring 
about the survival of the fittest. 

One chapter of this work is entitled "The use of conflict," in which 
he says : 

The progress of the military art is the most conspicuous — I was about to 
say the most showy — fact in human history. Ancient civilization may be com- 
pared with modern in many respects and plausible arguments constructed to 
Bbow that it is better; but you can not compare the two in military power. 
Napoleon could indisputably have conquered Alexander; our Indian army would 
not think much of the Retreat of the Ten Thousand. 

I venture to quote at length another passage in the same chapter: 

Particular consequences may be dubious, but as to the main fact there is no 
doubt; tbe military strength of man has been growing from the earliest time 
known to our history straight on till now. And we must not look at times 
known by written records only; we must travel back to older ages, known to 
us only by what lawyers call real evidence — the evidence of things. Before 
history began there was at least as much progress in the military art as there 
has been since. The Roman legionaries or Homeric Greeks were about as 
superior to the men of the shell mounds and the flint implements as we are 
superior to them. There has been a eenstant acquisition of military strength 



SOME ECONOMIC ASPECTS OF WAR. 7 

by man since we know anything of him, either by the documents he has com- 
posed or the indications he has left. 

The cause of this military growth is very plain. The strongest nation has 
always been conquering the weaker; sometimes even subduing it, but always 
prevailing over it. Every intellectual gain, so to speak, that a nation possessed 
was in the earliest times made use of — was invested and taken out — in war; 
all else perished. Each nation tried constantly to be the stronger, and so made 
or copied the best weapons; by conscious and unconscious imitation each nation 
formed a type of character suitable to war and conquest. Conquest improved 
mankind by the intermixture of strengths; the armed truce which was then 
called peace improved them by the competition of training and the consequent 
creation of new power. Since the long-headed men first drove the short-headed 
men out of the best land in Europe all European history has been the history 
of the superposition of the more military races over the less military, of thf 
efforts — sometimes successful, sometimes unsuccessful — of each race to get more 
military; and so the art of war has constantly improved. 

But why is one nation stronger than another? In the answer to that, I be- 
lieve, lies the key to the principal progress of early civilization ajad to some of 
the progress of all civilization. The answer is, that there are very many advan- 
tages — some small and some great — every one of which tends to make the nation 
which has it superior to the nation which has it not; that many of these advan- 
tages can be imparted to subjugated races or imitated by competing races; and 
that though some of these advantages may be perishable or inimitable, yet, on 
the whole, the energy of civilization grows by the coalescence of strengths and 
by the competition of strengths. 

It would be hard to exaggerate the change which has come about, 
both in historical writing and in political thinking, as a result of the 
theory of natural selection. History has been largely rewritten in 
the light of this new philosophy, and more and more has the eco- 
nomic element come to be emphasized as the determining factor in 
the history of national struggles. However, if the effect of the new- 
theory was merely to change our interpretation of the past it would 
be of relatively little significance for the problem which we are dis- 
cussing. The vital question is how far this principle is operative 
at the present time and whether or not it throws any light on the 
practical problems of the moment, 

It would never have come to full recognition in the field of human 
affairs had not marked changes taken place in economic conditions 
since the triumph of the free trade school in England. I have re- 
ferred to the early period of mercantilism, when every weapon of 
a nation was utilized to advance its own interests at the expense of 
rivals. These weapons were various, including protective tariffs, 
prohibitions and bounties on exports and imports as the occasion 
might demand, commercial treaties, the arts of diplomacy, and 
finally war. 

The last 25 years has seen the development of a neomercantilism 
which, although more enlightened in detail than the commercial 
policy of the seventeenth and eighteenth centuries, still takes as 



8 SOME ECONOMIC ASPECTS OF WAR. 

its starting point the rivalry between nations rather than the har- 
mony of their interests, and uses, or stands prepared to use. the 
weapons of that earlier period. From the doctrine of individualism 
spring the ideas of free trade, economy, and perpetual peace. From 
the doctrine of nationalism spring the ideas of protectionism, eco- 
nomic independence, the necessit}^ of increased public expenditure, 
and the inevitableness of war. This is as true of the nationalism 
of to-day as it was of the mercantilism of the seventeenth century. 

What is the reason for this return in modern times to political 
and economic theories which have been temporarily so completely 
supplanted? The answer is, of course, to be found in the changed 
economic conditions, including a great increase in population and 
an extraordinary industrial expansion. The great economic prog- 
ress of the years when the peace and free-trade dogma was so influ- 
ential has been the very cause of its own overthrow. As I have 
already said, for a half century after the Napoleonic wars the eco- 
nomic rivalry of nations, which had been so vital and influential 
in the earlier period, temporarily disappeared. As industry recov- 
ered and proceeded to advance by leaps and bounds, nations were 
again brought face to face with the fierce problems of international 
competition. France, Germany, and the United States pushed rap- 
idly to the front, and the theory that England alone should be the 
workshop of the world was no longer tenable. 

The growth of industry made the problem of control of neutral 
markets a crucial one for the prosperity of industrial nations, and the 
rapid growth of population suddenly brought mankind face to face 
with the problem of the ages ; namely, is there room on the earth for 
the indefinite expansion of all competing races? If not, who shall 
get off the earth? Which races shall expand and exploit the world's 
material resources, spreading their own peculiar civilization at the 
expense of others? Here we have the problem of the struggle for 
survival and natural selection, not as a scientific theory of the evo- 
lution of lower organisms, but as a practical problem of the moment 
for every nation to face. What race is meekly going to admit its 
own inferiority without a struggle, and calmly step aside to make 
room for the expansion of its rivals? 

The growth of population in the future, «,s in the past, may be 
expected to act like the generation of steam. Either there must be 
some exhaust through the safety valve or else an explosion. And 
when the areas available are inadequate to relieve the increase in 
pressure, which may be the case recurringly in history, international 
contests are almost inevitable. 

Ideas of this kind are laughed at by many of the most intelligent 
people in the United States, and it is not unnatural that such ideas 
should be little recognized in this country in view of our past his- 



SOME ECONOMIC ASPECTS OF WAR. 9 

tory. In the first place, we have always considered ourselves largely 
isolated from the rest of the world and exempt by our geographical 
position from the problems of the older nations. In the next place, 
the extent of territory and the great natural resources of this coun- 
try made the problem of the pressure of population on subsistence 
seem almost a ridiculous fancy. 

Our isolation to-day. however, is by no means so complete as we 
had formerly thought, and we now recognize that the era of inex- 
haustible free lands for a growing population lias passed forever. 
It is entirely natural, however, that these ideas should have been 
held more widely in Europe and should have led there to a greater 
intensity of feeling than in the United States. That the whole 
attitude of European thinkers toward the problems of national 
rivalry has changed during the past generation can not be ques- 
tioned, and it has changed simply because European nations have 
again been brought up against the hard fact of earlier ages. The 
idea is growing that now, as formerly, the indefinite expansion of a 
race in numbers and prosperity can only be ultimately continued 
by means of conquest. 

These are not the views of the military class alone. They are the 
views held, for instance, by many professors of political economy, 
a class who (it has alwa} 7 s been assumed in England and the' United 
States) were necessarily, from their profession, advocates of econ- 
omy, disarmament, and peace at all costs. A striking volume of 
essays by leading German economists appeared a decade ago dealing 
with the commercial problems of Germany, in which the two chief 
notes were, first, the necessity of a vigorous Government policy to 
advance the world trade of the Empire, and. second, the demand 
that German trade should everywhere be carried on under the 
sheltering protection of German guns. 

So far I have attempted to point out the contrast between certain 
general theories of society and the historical reasons for the over- 
throw of the old philosophy of nationalism by the ideas of a cosmo- 
politan individualism in the nineteenth century, and for the reaction 
in turn against this cosmopolitanism and the substitution of a new 
nationalism in the twentieth century. Let me now consider briefly 
certain problems regarding the relation of war to economics; that is, 
to commerce and industry, in a more practical way. 

There are two phases to this question: One is the effect of com- 
merce on war and the other is the effect of war on commerce and 
economic welfare. On both many erroneous views have been held by 
the theoretical advocates of peace and disarmament. 

First, then, what is the effect of commerce on war? For many 
years it was maintained by the group of writers most influential in 
their day that the growth of commerce inevitably meant the end of 

27423'— 14 2 



10 SOME ECONOMIC ASPECTS OF WAR. 

war, as certainly as it had meant in the past the end of piracy and 
the lawless regulation of individual affairs by the sword or the pistol. 
I recall that in the days of Mr. Godkin the New York Evening Post 
regularly printed an editorial about once every six months to prove 
wars would be impossible in the future because the business men 
would no longer tolerate such medieval brutality and waste; and, if 
I am not mistaken, I occasionally see in its columns editorials of this 
same nature. 

This idea can be found here and there from early time. It was 
given strong expression by the Philosopher Kant in his work on Per- 
petual Peace. Under the influence of the humanitarian philosophy 
of the eighteenth century he was one of the strong leaders of the 
antimilitary spirit, and in searching for some fundamental cause to 
prove that war would ultimately be abolished he found it in the 
growth of the commercial spirit which, he claims, was bound to be- 
come more and more the controlling spirit in human affairs and 
which was in its very nature opposed to the spirit of war. 

The same idea was taken up by Herbert Spencer in his sociology 
and his famous division of all societies into the military type and 
the industrial type is well known. Spencer holds, somewhat 
strangely it seems to me, that " aggressive- egoism " is an essential 
characteristic of the militant type of society, but is only incidental 
to, or. as he says, i; extrinsic," to the industrial type which, he claims, 
" favors the growth of altruistic sentiments and the resulting vir- 
tues. - " What is more important, however, is that, while recogniz- 
ing the difficulties of political prophecy for the immediate future, 
he assumes that the forces of social evolution will ultimately bring- 
about the industrial type as the permanent form of society. His 
disciples have carried this idea even farther and have seemed almost 
to hold that the elimination of Avar in the future had been scien- 
tifically proved. 

Economic historians of the present time, however, have dealt with 
the historic problem of war in a very different spirit from the 
writers of one or two generations ago. It is now generally recog- 
nized that commerce, or at least the economic problem of subsistence, 
has been not a deterrent of war. but more than any other one thing 
a cause of war in the past. Prof. Robinson of the University of 
Minnesota some years ago published a brilliant and learned essay 
entitled " Economics and War, 1 ' in which he concisely traces the 
influence of commercial rivalry on the wars throughout the cen- 
turies. 

From tribal struggles of prehistoric days for the possession of the 
best hunting grounds down through the barbarian invasions of 
Europe (caused ultimately by the search for food), through the 
struggles of England, France, Spain, and Holland in the seventeenth 



SOME ECONOMIC ASPECTS OF WAR. 11 

and eighteenth centuries, to the final contest between England and 
Napoleon, wars were caused primarily, not by the prejudices and 
jealousies of rulers and statesmen, but by the bitter rivalry for the 
control of the world's economic resources. It is even maintained 
by historians that the so-called " religious " wars were primarily 
economic in their character and that even the Crusades were under- 
taken rather for the spoliation of the rich resources of the East 
than for the rescue of holy land. 

Molina ri states in his work on " Grandeur et decadence de la 
guerre '' : 

When experience had demonstrated that the Crusades no longer paid, they 
were given up, and the wars of expansion of the peoples of Europe did not com- 
mence again until after the discovery of America. 

Regarding another so-called "religious" struggle, Prof. Schmoller 
has gone so far as to say: 

The heroic struggle of the Dutch displays itself, when looked at in a dry 
light, as a century-long war for the conquest of East Indian colonies and an 
equally long privateering assault on the silver fleets of Spain and the Spanish- 
American colonial trade. 

One might suppose that Cromwell, of all statesmen, would have 
been moved by religious sympathies, but when the commercial ex- 
pansion of England was at stake the Protestant Dutch could expect 
no more sympathy from the Puritan than from the Stuart. The 
ruthless overthrow of Dutch maritime supremacy by the English is 
the striking feature of the third quarter of the century. It was 
inaugurated by Cromwell and carried through under Charles II, 
and was in no way affected by the personal feelings of either. It was 
purely a problem as to which nation should be mistress of the seas 
and master of the world's markets. 

Has anything happened to stop this age-long result of commercial 
rivalry? The most recent wars, such as the Boer War and the war 
between Russia and Japan, have unquestionably been primarily eco- 
nomic in their nature and. if I have been correct in my statement re- 
garding the economic changes of the last generation and their effect 
in increasing race consciousness and feelings of international hostil- 
ity, we may be sure that even more completely than in the past 
nations will seldom go to war except for commercial advantage, but 
will ultimately resort to arms when convinced that by victory they 
will secure for themselves the necessary means of maintaining or 
expanding their commercial welfare. 

Again, it may be said that the United States are not subject to 
the laws of economic and political development of European nations, 
and that an}^ commercial gain through war is an impossibility for 
this country- Such a view seems to me shortsighted in the extreme. 
We are already in touch with the problems of European politics 



12 SOME ECONOMIC ASPECTS OF WAR. 

through our island possessions; we maintain the doctrine that the 
whole American continent shall be removed from the future aggres- 
sions of foreign powers: and we are already reaching the point 
where the problem of the pressure of population on subsistence is 
no longer so distant as to be disregarded, but may become a vital 
problem even within the lives of children now living. 

Let us turn, then, to the second phase of our question, the effect 
of war on commerce and industry. Here again we have to meet 
the common and obvious reply to this question, namely, that the 
effect of war is always destructive. That it is destructive in many 
ways nobody could question, but it is not necessary to dwell here in 
detail on such obvious facts as the tremendous financial cost of war. 
the loss of capital through positive destruction and devastation of 
conquered territory, the waste of capital even for the conqueror in 
the utilization of so large a number of the means of production for 
merely destructive purposes and the removal from the ranks of 
industry of hundreds and thousands of workers who might be 
engaged in increasing wealth rather than in destroying it. All of 
these results of war are familiar enough and even if accurate figures 
were available it would not be necessary to repeat them here. 

Many modern writers think that such destructive effects have been 
exaggerated in the past in the same way in which that other fearful 
loss, the loss of life, has been exaggerated. The loss of life we look 
en, not so much as an economic problem, as a humanitarian one, and 
it needs no expression here. I should like to say in passing, how- 
ever, that it seems strange to me that there are so many who, while 
talking of the sanctity of human life and expressing horror of war 
on this ground, seem to be unmoved by the far greater loss of life 
which comes from competition in the economic field with its result- 
ing degradation of labor in certain lines of industry, the mainte- 
nance of crowded and insanitary slums, the spread of disease, and 
the degeneration, if not starvation, of a part of the generation which 
i« to take our places. Here is a death roll far greater than that of 
modern warfare, and a death roll which has no high compensation 
in the glory of courageous daring or faithful service to country. 

Dr. Steinmetz, in his book on the philosophy of war, to which 
[ have already referred, claims that the loss of life in the European 
wars of the nineteenth century has been less than is represented by 
(he normal fluctuations of the death rate from year to year in any 
oiven country. However, as I have said, the question of the loss 
of life is not a part of the subject of this lecture. I wish, however, 
that somebody would make some judicious estimate of the problem 
of disease in connection with military operations. You, of course. 
know that in past wars a very large proportion of the deaths has 
been due to disease rather than to the shot of the enemy. This is 



SOME ECONOMIC ASPECTS OF WAR. 13 

likely to be greatly changed in the future. Nowhere have the prob- 
lems of proper sanitation and care of health been more thoroughly 
studied than in modern armies, and the great advance along these 
lines will make the loss from these causes very much less in future 
wars. 

It is only fair that the public should also recognize the splendid 
services rendered to public health by our military organization. It 
may be that under any circumstances yellow fever would have been 
stamped out. As a matter of fact, this great feat was accomplished 
directly through our military occupation of Cuba. It would be hard 
to estimate the great economic gain which has come to this country 
through the removal of recurring yellow-fever scares, with the result- 
ing quarantines and interference with business. It can certainly be 
stated with all positiveness that since the outbreak of the Spanish 
War more lives have been saved by a hundredfold than have been 
destroyed by the United States Army. 

Can anything now be put on the credit side to show that war is 
not always and in every way a deterrent to ecocomic welfare? Cer- 
tainly much may be said on the credit side, and 1 know of no phase 
of the problem of war and armaments which has been so neglected. 
A distinguished German writer, Prof. Sombart, in a book which has 
just been published, entitled " Krieg mid Kapitalismus," devotes 
himself to the attempt to show that, historically, war has been an 
important agent in bringing about the growth of modern capitalism. 

In the first place, it is only through war that modern states have 
been formed, with a strong national government and the possibility 
of a genuine national economic policy which took the place of the 
local and territorial economies of an earlier period. The history of 
England in an earlier period and the history of Germany in the 
nineteenth century furnish adequate proof of the close connection be- 
tween the development of modern industry on a great scale and the 
development of great national units in the field of politics. Further- 
more, war and colonial expansion have always gone hand in hand, 
and the develepment of colonial empires has been one of the impor- 
tant factors in the growth of modern capitalistic production and 
commerce. 

But this author suggests that war has worked more directly in the 
upbuilding of capitalism through its creation of the modern army 
with its vast needs and the great impetus given to large-scale pro- 
duction through the huge financial operations resulting from war 
loans and the first appearance of a concentrated demand for the pro- 
ductions of industry in enormous quantities. 

Sombart traces the effect of military development on economic 
conditions from the beginning of modern military organization to 
the end of the eighteenth century and summarizes his conclusions 



14 SOME ECONOMIC ASPECTS OF WAR. 

under three heads: First, that war, and consequently the necessity of 
military armaments, has been an active force in increasing the accu- 
mulations of capital. This may seem a strange conclusion in view of 
what has already been said of the destructive effect of war on capital 
and productive forces. The fact is that war acts in a twofold way. 
The enormous commercial contracts involved in a great war have in 
the past made possible the accumulation of large individual fortunes 
and at certain stages of history, at least, such large individual accu- 
mulations have been a distinct spur to great savings and consequent 
investment on a large scale in industrial enterprises which, in turn, 
have increased the capital of the community as a whole. 

Secondly, the growth of capitalism requires the development of a 
new psychological type of industrial leader. This new leadership 
depended on the capacity to undertake vast enterprises requiring con- 
summate ability in organization and direction and the capacity to 
wait patiently and work continuously for results which could only 
be accomplished at some future date. But it is exactly in the field of 
military organization and warlike enterprise that these capacities 
were first developed. To-day, and in this country, it may be that 
business enterprises have grown to such magnitude that individual 
concerns even overshadow the military organization in matters of 
this kind, but historically the first great economic enterprises resulted 
from military needs, and it may fairly be said that from such needs 
the modern business world received its schooling in the matter of 
organization and large-scale enterprise. 

The third point which this writer makes is that military expendi- 
tures offered the first great markets for production on a large scale, 
and that in many lines of industry, such as the iron and steel 
industry, the textile industry, and industries connected with the food 
supply, what may be called the military market was a fundamental 
cause of the development of modern industrial methods, and the 
increased efficiency of large-scale production. Much more might be 
said historically about the effect of war on economic organization 
from this point of view. For instance, in the field of transportation, 
the military roads of the Romans became the highways of commerce, 
and this was also true in later days of the road building policy of 
Napoleon. In the same way in modern times railroad building and 
railroad consolidation have not infrequently been undertaken for 
military purposes, to serve later an important economic need. But 
we can not take time here for historical analysis. 

Sombart. in closing his study with the end of the eighteenth cen- 
tury, seems to do so with the idea that this developing influence of 
the military organization on the economic organization had done 
its work by that time and that in the later period conditions are 
reversed. I believe, however, that to a lesser extent the same influ- 



SOME ECONOMIC ASPECTS OF WAE. 15 

ences could easily be traced down to the present day. Let us con- 
sider for a moment what we should theoretically expect to be the 
influences of war on the credit side so far as economic conditions are 
concerned,, and draw a few illustrations from our own recent history. 

In the first place it should be stated that the growth of industry 
and trade does not depend solely on the growth of capital and the 
quantity of labor, as was commonly assumed by the writers of the 
peace and free trade era. Equally important is the character of lead- 
ership in the industrial field, and by this I do not mean only the 
ability to organize and coordinate the forces of production on the 
part of the captains of industry; I mean also the more subtle quali- 
ties of confidence, faith in the future and speculative daring. These 
are vital elements in commercial progress, but they are of peculiar 
psychological character and are affected by many influences which 
are not at all economic in their nature. Is it not to be expected 
that under the impetus of a great war, when national fervor is at 
its highest point and the spirit of daring and sacrifice pervades the 
community, that these influences should also be felt in the field of 
business, and that men should confidently undertake enterprises 
which in calmer times would have seemed staggering and impossi- 
ble in their nature? I believe that on this point ample evidence 
could be found. 

I recall a conversation at the outbreak of the Spanish War be- 
tween two able men of the old school who agreed that that war would 
put the United States back morally and economically a full quarter 
of a century. This prophecy was scarcely fulfilled. The period be- 
fore the outbreak of the Spanish War had been a period of great 
stagnation and hard times. Nobody dared to borrow capital to 
develop new enterprises or to expand old ones, while the half dozen 
years following the war were perhaps the most extraordinarily 
prosperous in our whole history. I do not mean to say that hard 
times would have continued without the war. or that the war was 
the fundamental cause of business revival, but I do think it played 
a distinct part. We had come to the point where the evils of ex- 
cessive industrial expansion had worked themselves out, supplies 
had been greatly diminished, and an increased demand was bound 
to come, working toward improved conditions. But a demand has 
to be started by somebody. A break had to be made at some point 
in the business timidity which had prevailed for so long, and the 
war came at the psychological minute to start the upward movement. 

This was partly due to the fillip given to trade by Government con- 
tracts, but much more, I think, through the psychological change 
which resulted from getting our minds away from the industrial 
hardships of the preceding years and the stimulating feeling that at 
last there was " something doing." In other words, the war came 






16 SOME ECONOMIC ASPECTS OF WAE. 

as a trumpet call, not only to the military spirit of the country but 
to the industrial spirit as well. 

Certainly this psychological influence played a marked role in the 
extraordinary industrial development of Germany immediately after 
the Franco-Prussian War. Again, I can not stop to attempt any 
analysis of the many factors which contributed to this development, 
but I am confident that a primary one was the increased confidence 
in their own rapacity which this signal triumph gave to the German 
people. Again I wish to urge the fact that courage and daring are 
as essential elements in the field of industry as in the field of war. 
One reason why the Germans began to beat their rivals in the eco- 
nomic field was that they had at last realized that they could beat 
their rivals, and this realization came to them largely as the result of 
the fact that they had beaten them in the field of war. 

Our Civil War offers many examples of the same kind. The vigor 
of business life in the North throughout that great conflict is still a 
matter of amazement for the economic historian. Here again the 
influence was twofold. The huge Government contracts acted as an 
extraordinary degree of protection and encouragement, but equally 
important was the fact that the same spirit of forward endeavor 
which animated the armies in the field also animated the leaders and 
the rank and file in the domain of business. 

I would only suggest one other theoretical result of war in this 
connection, but that an all-important one on the credit side of the 
ledger and more perfectly illustrated during our Civil War than at 
any other period in history. Again note the ordinary assumption of 
the writer of the old school that capital and labor are always em- 
ployed to their full extent. No allowance was ever made for the 
enormous reserve productive force which can be called out in time of 
emergency. And yet should we not expect theoretically that a time 
of great stress (as a result of armed conflict and depletion of the 
ranks of labor for military purposes) would be in large measure at 
least offset by the utilization of this reserve force? Workmen who 
had already been employed would work harder and longer. The very 
necessity of the situation would demand better organization and the 
utilization of the most economic methods of production, while there 
is a vast reserve fund of labor which, under ordinary circumstances 
is not employed, can be called upon at such a period. In other 
words, the destructive influence of war on industry, which would 
seem to be a patent fact due to so large a proportion of the population 
being removed from the ranks of industry, proves not to be a net loss 
at all, but is largely made up from the industrial reserve force. 

Prof. E. D. Fite has recently published a book entitled "Social 
and Industrial Conditions in the North During the Civil War." We 



SOME ECONOMIC ASPECTS OF WAR. 17 

have already been familiar with the extraordinary fact that produc- 
tion in most lines did increase during this period, but he has here 
collected a large amount of interesting evidence to show how general 
this condition was. Certain industries were, of course, seriously 
crippled, especially the cotton industry, due to lack of the supply of 
the raw material, and the serious effect of this situation on European 
industry is well-known. Such disturbances as this must always stand 
on the debit side of the ledger as real destructive effects, but in the 
main manufactures were not only flourishing from the financial point 
of view, but the actual output was increased. We produced in 1864 
50 per cent more iron rails than in any year before the war. Much 
the same was true of many other lines of manufacture. 

Even more surprising, perhaps, was the agricultural situation. 
Here the reserve forces of labor made themselves most apparent. 
When the men went to the front the women and the boys took their 
places on the farms. The situation was well expressed by the 
popular verse of the times: 

Just take your ;'im and go. 

For Ruth can drive the oxeu, John, 

And I can use the hoe. 

The truly surprising feature of this agricultural expansion was 
not that the increased production was exhausted by the demand for 
food supplied for the Army, but that the surplus above our own 
needs was also increased, and we actually exported more grain in 
1863 and 1861 for European consumption than we had ever done 
before, and this with more than a million men removed from the 
ranks of industry. In 1864 Indiana, for example, with 10 per cent 
of her total population in the Union ranks, produced more wheat 
than she had produced in any year before the war. V. 

Similar illustrations, I believe, could be found in other countries. 
And it is not always the conquering country alone which shows 
effects of this kind. The industrial expansion of Germany after the 
Franco-Prussian War has been referred to, but only less striking 
was the increase of industry and rapid growth of prosperity in 
France as well. Do not understand me to say that war is to be 
advocated as a method of increasing the production of wealth. T am 
only trying to point out how greatly its destructive effect has been 
exaggerated. The expansion of business during the Civil War in 
the Northern States was perhaps in spite of the war rather than 
because of it. Of course due credit should be given to the discovery 
of new natural resources, such as petroleum, during this period and 
to the rapid increase of inventions, a number of which, brought out 
during the Civil War, revolutionized old or established new indus- 
tries. What most writers on the subject of war and business have 



18 SOME ECONOMIC ASPECTS OF WAB. 

forgotten, however, is that the productive capacity of a community 
is in normal times only partially utilized, and that consequently the 
economic loss due to war is very much less than has commonly been 
supposed. 

Personally, I am inclined to the opinion that in certain ways, and 
especially in the case of those industries which supply war materials, 
the Civil War actually acted as a stimulating influence. It is never 
possible after the event to say what would have happened had con- 
ditions been different, but I believe a good case could be made for 
the contention that the condition of industry in the United States 
in 1870 was as prosperous and as advanced as it would have been 
had there been no great struggle in the first half of the decade. 
In certain specific lines the influence of the war in increasing the 
productive capacity of the country can be definitely traced, due to 
that new spirit of daring to which I have referred in general terms 
above. Men like Gen. Grenville Dodge have testified to the impor- 
tance of their army experience in this regard. Officers Avho like 
him went into the great work of railroad building following the 
war assert that no such extraordinary achievement as, for instance, 
the rapid building of the Union Pacific would have been possible 
on the basis of merely industrial experience. It was because they 
had become accustomed from sheer necessity to face great emer- 
gencies in building operations for military purposes and to be 
daunted by no difficulty whatsoever that they took up the new 
and vast enterprises in a spirit which was essential for their success. 

But one cost of war there is which can be measured in cold figures 
and for which there seems to be no economic offset. That is the 
actual enormous governmental expenditure frequently entailed. The 
piling up of government debt is a burden on the taxpayer of the 
present and future generations which can not be waved aside, and 
which goes far to offset any argument which can be made in favor 
of war from the economic point of view. How is this great problem 
to be met? The obvious answer is by having short wars, and the 
obvious way to have short wars is to be prepared beforehand to 
make them short. 

This is the part of our question which touches you gentlemen most 
directly. You believe in military preparedness and in adequate 
appropriations to this end. As a political economist solely I thor- 
oughly agree with you. The tremendous cost of war in this country 
has been due to the fact that we have never been prepared for war. 
You do not need any testimony from me on this fact. You have 
all of you worked out much more fully than I have the extent to 
which the military expenditures of this Government have been in- 
creased in the long run as the result of the lack of any adequate and 



SOME ECONOMIC ASPECTS OF WAR. 19 

intelligent military organization. I regret very much that the in- 
telligent public in this country appreciates this fact so little and is 
so little inclined to learn from the lessons of past history. It is a 
pity also that the writers on political economy are so little alive 
to the advantage of spending before the war rather than during the 
war as a purely business proposition. 

I still recall vividly the first lecture which I heard at the Uni- 
versity of Berlin when studying political economy as a young man 
at that institution. I had myself been brought up under the influ- 
ence of the classical political economy, and rather accepted it at 
that time as an axiom that military expenditures, although perhaps 
necessary in some measure, were wasteful and regrettable, and should 
be reduced to the lowest terms. The first lecture I heard was in a 
course on public finance by Prof. Wagner, recognized as the greatest 
authority on that subject in the world. The day of my arrival he 
was lecturing on military expenditures, and I shall never forget my 
revulsion of feeling as I heard him contrast the policy of Germany 
with the policy of the United States. Vigorously and skillfully he 
contrasted our policy in the days before the Civil War with the 
policy of Prussia in the years preceding the Austrian and French 
wars, and then showed the economic results of the two policies. We 
who had complacently congratulated ourselves on saving our money 
were plunged into a stupendous conflict at a cost till that time un- 
heard of, while Prussia annihilated Austria in a few weeks, and in 
a few months after the outbreak of the Franco-Prussian War the 
Germans had every French army subdued or bottled up beyond the 
possibility of escape, and then was able to secure a huge indemnity 
to serve as the necessary capitalistic basis of the forward march of 
German industry. 

It ought to be apparent, both theoretically and from experience, 
that the cost of peace armament is not to be measured simply as a 
net waste of money. Books, magazines, and papers are filled with 
statements regarding the enormous burden imposed upon the people 
of Europe by their increasing military expenditures, and the sums 
themselves and the continuous increase do sometimes appear stagger- 
ing, but when compared with the total earning capacity of a people 
such expenditures take on a different character. Certainly Bloch is 
not likely to minimize the extent of such expenditures, as he has been 
one of the leading writers to show the immensity of this burden, and 
>yet he himself states that the military expenditures of different Euro- 
pean countries vary from 2 per cent to 3.8 per cent of the total in- 
come. Even Germany, with her great organization, takes less than 
3 per cent of the actual income for its maintenance, both of army 
and navy; and when we think of the expenditures for luxuries, many 



20 SOME ECONOMIC ASPECTS OF WAR. 

of them harmful in themselves, the extent of military expenditures 
appears even less. In Germany, for instance, three times as much 
is spent for intoxicating drinks as for the support of military and 
naval establishments. One-third less consumption of beer and liquor 
un the part of the German people would take care of this part of the 
budget altogether. 

How, then, are we to estimate the real cost of an adequate military 
and naval organization in time of peace, and what is the nature of 
this cost? In the first place, much is frequently said regarding the 
economic waste which is involved in peace armaments, due to the fact 
that so large a number of adult young men are taken out of the ranks 
of industry year by year, thereby reducing the productive capacity 
of the community, since they might otherwise be employed in in- 
creasing the national wealth. The argument hardly applies in any 
serious way to an army such as ours, which is so small in proportion 
to our great population, but it is very questionable whether it even 
applies in a case like Germany, with its half million or more of men 
continuously under arms. 

The same argument might easily be made regarding the number 
of able-bodied young people in our high schools, technical schools, 
and colleges. A few narrow-minded people deny the advantages 
of education altogether, and a still larger number are inclined to 
think that from the economic point of view education beyond the 
grammar school at least is a net loss to the community, and that 
the productivity of labor is not increased by education of this kind. 
I hope that education will still be advocated, even if it can not be 
defended on purely economic ground, but I think that most intelli- 
gent people of the present day believe that in the long run the pro- 
ductivity of the people is increased by education and that the growth 
of wealth is increased rather than decreased through our schools. 

If now the militaiw training has educational results of the same 
kind, compulsory army service is nothing more than compulsory 
education. I think it is now the opinion of most careful observers 
of German conditions that the military service of so many of her 
young men for two years acts exactly in this way. Youngsters are 
taken from the quiescent life of the farm, or from the somewhat 
dangerous life of factory communities and are trained in prompt- 
ness, diligence, obedience, cleanliness, and fidelity to duty. Further- 
more, they are given actual instruction in various lines in the way 
of increasing their general intelligence, and they of necessity become 
in some measure familiar with the intricate mechanism of military 
weapons, which in itself gives a certain training in the knowledge 
of machinery. Personally, I believe that the efficiency of factory 
labor in Germany has been greatly increased through this military 
education, and that the young n en who have been through this 



SOME ECONOMIC ASPECTS OF WAR. 21 

training become much more efficient in the field of production in 
later years than they would have been had they not been obliged to 
undergo this training at all. In other words, the compulsory 
service might be justified as economically self-supporting on purely 
educational grounds. 

Another economic phase of the question besides the educational is 
the fact that preparation of this kind is in the nature of business in- 
surance. It can easily be maintained that, from the educational point 
of view alone, an equally good training could be given for industrial 
purposes without such vast expenditure for armament and ships, but 
if it is true, as all history shows, that the safety of the commercial 
prosperity of any nation may at any time be threatened or over- 
thrown by war, the question as to how this commercial prosperity 
can be best insured becomes a purely business question. 

A nation may choose its policy in this regard exactly as ah in- 
dividual chooses his policy regarding his own business property. 
The business man with a reckless gambling instinct may prefer not 
to spend what may prove to be needless money in the insurance of 
his factory or of his goods in transit, but it is now the established 
custom of all conservative business men to carry full insurance 
against all risks. This is the policy of Germany to-day in military 
affairs and the policy of England more particularly in the mainte- 
nance of her naval strength. 

We have seen what the results of an opposite policy in the United 
States have meant in the enormous losses which we have been forced 
to undergo whenever we have engaged in actual warfare. The man 
who does not carry insurance comes out very well in case conflagra- 
tion or other disaster is avoided, but if such disaster comes he is 
brought to the point of ruin. Of course, it is frequently maintained 
that so far as this country is concerned the risks are so slight and 
insurance so costly that it is better to take the risks and save the in- 
evitable expense of insurance. 

I have already indicated my own feeling that it is living in a fool's 
paradise to assume so readily this absence of risk for ourselves if we 
look ahead for any serious length of time. I suppose none of us 
anticipates any immediate danger in the nature of international con- 
flict, but the whole point is that if we believe in the possibility of 
such conflict any time within the next 50 years the time to make a 
start is now. If we once adopt the policy of delay there is no reason 
why it should not be extended year by year until the fatal moment 
comes and finds us entirely unprepared. 

Furthermore, it should be said that if the political relations are 
such that we seem to need insurance less than other nations, on the 
other hand the financial relations are such that we can afford insur- 
ance much better than other nations. The wealth of this countrv 



22 SOME ECONOMIC ASPECTS OF WAR. 

is greatly in excess of that of any other country, and it is increasing 
year by year enormously. Despite the fact that we all grumble 
about taxes, the fact remains that we have as yet only scratched the 
surface of the taxing capacity of the American people for Federal 
needs. The very extravagance of our Government in the matter of 
pensions, river and harbor appropriations, public buildings, and 
so forth, is a sign of the relatively light burden which people are 
called upon to bear. Conservative military men, I take it, do not 
propose that we should maintain such a military establishment in 
this country as would be as much in excess of European nations as 
our wealth and population are in excess of theirs. I have read over 
several times lately the report of the General Staff, published last 
August, on The Eeorganization of Our Land Forces. It should be 
read by every citizen. Of course I have no knowledge of the prob- 
lems there considered, but it is a remarkable document as a model 
of clear presentation and logical reasoning. It is also noteworthy 
for its sane appreciation of the necessity of orderly historical devel- 
opment and for the modesty of its proposals in the matter of increas- 
ing our Military Establishment. You ask only that the public and 
their representatives in the Government should appreciate the cru- 
cial character of the problem and should give the necessary support 
for the development of an organization which, though relatively 
small in itself, would be adequate both in numbers and in the* 
character of organization to make possible the most prompt and 
effective increase of the military organization in time of emergency. 
I share with you the hope that in your propaganda for this more 
enlightened policy you will receive the support of business men and 
political economists alike. 

A dozen years ago when a campaign of education seemed necessary 
in Germany to arouse a greater interest in Germany's navy and to 
secure support of the measures aiming at naval expansion it was a 
professor of political economy at the University of Berlin who was 
intrusted with this movement by the department of marine, and who 
was more responsible than anyone else for the successful carrying out 
of the movement. It was in connection with this movement that 
the volume of essays to which I referred above appeared, entitled 
" Hansels- und Machtpolitik," to which vigorous essays were con- 
tributed by eight or ten of the best-known professors of economics 
in Germany. 

One final point I wish to make regarding the objection so fre- 
quently advanced that the victory in war is not a true test of the 
relative superiority of different nations. I frequently hear it as- 
serted that a struggle of brute force does not tend to the survival 
of the highest type under conditions of modern civilization. Such 
critics seem to have the idea that modern warfare, like that of more 



SOME ECONOMIC ASPECTS OF WAR. 23 

primitive days, depends upon the sheer physical strength of the par- 
ties engaged. In any case it is assumed that it is a matter only of 
relative numbers and wealth. But what is forgotten is that it is 
true to-day as Bagehot asserted it to be of primitive struggles that 
every intellectual gain of the community is taken out or invested in 
war. 

I have sometimes thought that no fairer test of the highest effi- 
ciency of peoples could be made than by a duel of two dreadnoughts, 
each representing the highest scientific skill of its own people. 
Every capacity of the human mind, except the purely artistic and 
N "literary, is tested in a struggle of this kind. Where can a more 
marvelous result of modern genius be found than in the perfect 
ship ? Even Kuskin was fond of dwelling on this conception ; but a 
duel of two dreadnoughts would not be a test of the vital strength 
of two peoples. It is not only a question of the relative merits 
of ships themselves, but also a question of relative numbers and 
economic power. That nation which can build the most ships or 
support the largest armies is the nation which has shown the greatest 
genius in the acquisition of natural resources and in the accumula- 
tion of wealth. In fact, it may well be asserted that war is the most 
searching test of economic efficiency, and that, on the other hand, 
economic efficiency is finally the most important factor in deter- 
mining the issue of military conflicts. 

I do not wish at all to detract from the importance of the high 
military virtues or the great role played in all such contests by 
purely military genius. These again reflect the superior mental and 
moral qualities of one race as against another. In fact, there is one 
moral quality of the supremest importance which is developed more 
markedly by soldiers and sailors in time of peace than in any other 
field of human activity. I refer to the capacity to contribute all 
of one's ability, energy, and fidelity, not to a definite result which 
these men are to themselves witness, but to the mere possibility of 
a distant danger to some future generation. It does not take great 
moral courage for a business man to do his utmost in order to con- 
struct a great work or accumulate a great fortune which he is to 
realize in his own lifetime; but to work ardently and faithfully, 
day after day, to perfect an organization which perhaps within the 
life of a generation may never be put to the test, to do this on the 
mere chance that such an organization will be needed in the future, 
requires a patience, foresight, and a fidelity which men in other 
fields are scarcely, if ever, called upon to meet. 

What I wish to emphasize is that all of these factors go together 
in determining victory or defeat, and that here, as elsewhere, the 
economic efficiency and the military efficiency of the people go hand 
in hand. Doubtless we all wish peace to be preserved and dread the 



24 SOME ECONOMIC ASPECTS OF WAR. 

arbitrament of war. All I claim is that when nations are forced 
to this arbitrament it becomes a test not only of "brute strength," 
not only of military virtues and capacities, but a test as well of 
their success in the manifold " arts of peace." Where can one find, 
except in war, the ultimate test of the relative superiority of two 
nations in all those qualities which make for national greatness — 
physical vigor, order and discipline, personal courage, patience, 
iarsightedness, the genius of leadership, organizing capacity, inven- 
tive genius, and efficiency in the production of wealth? 

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